396 F.2d 897 (2nd Cir. 1968), 557, United States v. First Nat. City Bank

Docket Nº:557, 558, 32404, 32405.
Citation:396 F.2d 897
Party Name:In the Matter of the Grand Jury Subpoena Addressed to First National City Bank. v. FIRST NATIONAL CITY BANK and William T. Loveland, Respondents-Appellants. UNITED STATES of America, Petitioner-Respondent,
Case Date:June 26, 1968
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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396 F.2d 897 (2nd Cir. 1968)

In the Matter of the Grand Jury Subpoena Addressed to First National City Bank.

UNITED STATES of America, Petitioner-Respondent,


FIRST NATIONAL CITY BANK and William T. Loveland, Respondents-Appellants.

Nos. 557, 558, 32404, 32405.

United States Court of Appeals, Second Circuit.

June 26, 1968

Argued June 12, 1968.

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Henry Harfield, New York City (Shearman & Sterling, Michael J. Aratingi, New York City, of counsel), for respondents-appellants.

Carl W. Schwarz, Atty., Dept. of Justice, Washington, D.C., (Edwin M. Zimmerman, Acting Asst. Atty. Gen., Howard E. Shapiro, David S. J. Brown, Ernest S. Carsten, Attys., Dept. of Justice, of counsel), for petitioner-appellee.

Briefs of amicus curiae urging reversal were filed by Sullivan & Cromwell, New York City (William C. Pierce, New York City, of counsel), for The New York Clearing House Association, Bank of America National Trust and Savings Association, Brown Brothers Harriman & Co., The First National Bank of Boston, The First National Bank of Chicago; and Kelley, Drye, Newhall, Maginnes & Warren, New York City (Francis S. Bensel, Albert J. Walker, Richard J. Concannon, New York City, Brown & Platt, Chicago, Ill., of counsel), for Continental Illinois National Bank & Trust Co. of Chicago.

Before SMITH, KAUFMAN and HAYS, Circuit Judges.

KAUFMAN, Circuit Judge:

The issue presented on this appeal is of considerable importance to American banks with branches or offices in foreign jurisdictions. We are called upon to decide whether a domestic bank may refuse to comply with a valid Grand Jury subpoena duces tecum requiring the production of documents in the possession of a foreign branch of the bank on the ground that compliance would subject it to civil liability under the law of the foreign state.

The district judge's factual recitation, carefully set forth upon the conclusion of the hearing on contempt, makes it unnecessary for us to do more than sketch the facts briefly.

On March 7, 1968, First National City Bank of New York (Citibank) was served with a subpoena duces tecum in connection with a federal Grand Jury investigation of certain alleged violations of the antitrust laws by several of its customers. 1 The subpoena required the production of documents located in the bank's offices in New York City and Frankfurt, Germany, relating to any transaction in the name of (or for the benefit of) its customers C. F. Boehringer & Soehme, G.m.b.H., a German corporation, and Boehringer Mannheim Corporation, a New York corporation (referred to jointly hereinafter as 'Boehringer'). 2 Citibank complied with the subpoena insofar as it called for the production of material located in New York but failed to produce or divulge any documents reposited in Frankfurt. Indeed, the bank even refused to inquire or determine whether any relevant papers were overseas. Instead, William T. Loveland, Citibank's vice-president responsible for the decision to defy the subpoena, appeared before the Grand Jury and asserted that the bank's action was justified because compliance would subject Citibank to civil liability and economic loss in Germany.

On May 8, 1968, Judge Pollack conducted an initial hearing at which the

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sole witness was Dr. Martin Domke, an expert in German law. He testified on behalf of Citibank that under the 'bank secrecy law' of Germany, a bank-- including a foreign bank (such as Citibank) licensed to do business in Germany-- cannot divulge information relating to the affairs of its customers even in response to the process of a court of the United States. To do so, he claimed, would amount to a breach of the bank's 'self evident' contractual obligation which flows from the business relationship between bank and customer. Domke made it clear that bank secrecy was not part of the statutory law of Germany; rather, it was in the nature of a privilege that could be waived by the customer but not the bank. He insisted that a violation of bank secrecy could subject the bank to liability in contract or tort but not to criminal sanctions or their equivalent. But, he made it plain, that it was a simple matter for a bank customer to obtain an ex parte restraining order enjoining a bank from disclosing privileged material and that a violation of such an injunction would be punished under a general provision of the criminal law governing violations of court orders. 3 As a result of this testimony, the district judge appropriately decided to adjourn this hearing in order to afford an opportunity to Citibank to ascertain whether its customers would obtain such an injunction and which would have the effect of subjecting the bank to criminal penalties if it complied with the subpoena. This did not prove fruitful however, for the very next day, the court was advised by Citibank's counsel that Boehringer did not intend to take advantage of the readily available injunctive procedures under German law. Instead, the judge was told that Boehringer had informed Citibank that it would have to 'suffer the consequences' if it obeyed the subpoena. It was suggested that Boehringer would sue the bank for breach of contract and would also use its influence within German industrial circles to cause Citibank to suffer business losses. 4

In any event, Citibank remained adamant in its refusal to produce the documents located in Frankfurt and on May 21, 1968, a second hearing was held, this time on the government's order to show cause why the bank and Loveland should not be held in civil contempt. Domke testified once again as did a government expert, Dr. Magdalena Schoch. Both witnesses discussed with great particularity the precise nature of German bank secrecy 5 and Citibank's prospective liability under German law if it were sued for disclosing privileged information. Domke made the point that compulsion by an American court would not be accepted as an excuse for violating bank secrecy and that in a civil suit under German law the court would determine 'in its free discretion' the amount of damages, if any. Schoch insisted, however, that Citibank would have a number of valid defenses in the event

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Boehringer ever sued. 6 Moreover, Schoch's testimony made clear that in a criminal proceeding in Germany bank secrecy does not provide a basis for refusing to obey a court order to provide evidence. 7

In a reasoned opinion, Judge Pollack concluded that Citibank had failed to present a legally sufficient reason for its failure to comply with the subpoena. He determined that it was manifest that Citibank would not be subject to criminal sanctions or their equivalent under German law, that it had not acted in good faith, 8 and that there was only a 'remote and speculative' possibility that it would not have a valid defense if it were sued for civil damages. Accordingly, he adjudged the bank and Loveland to be in civil contempt and fined the bank $2,000 per day for its failure to act; he sentenced Loveland to 60 days' imprisonment. 9 For the reasons stated below, we conclude that Judge Pollack's order was justified and affirm.

The basic legal question confronting us is not a total stranger to this Court. With the growing interdependence of world trade and the increased mobility of persons and companies, the need arises not infrequently, whether related to civil or criminal proceedings, for the production of evidence located in foreign jurisdictions. It is no longer open to doubt that a federal court has the power to require the production of documents located in foreign countries if the court has in personam jurisdiction

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of the person in possession or control of the material. See, e.g., First National City Bank of New York v. Internal Revenue Service etc., 271 F.2d 616 (2d Cir. 1959), cert. denied, 361 U.S. 948, 80 S.Ct...

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